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Jawwad Farid A number of banking, market risk and treasury customers have recently inquired about our course offering on the Setting Risk Limits topic.

Given the rise in volatility and the increased regulatory supervision for market risk, the limit setting, monitoring and controlling piece is becoming increasingly visible. There is similar interest in using an extension of this framework for setting counterparty limits.

Here is a quick reference guide to courses available on our two stores. Please feel free to walk through the samples first before you pick one or more of the following offerings.

In the video course we consider how VAR is used in allocating, calculating and defining optimal levels for limits: Stop Loss Limits, Pre-Settlement Risk (PSR) Limits and Margin haircuts for bonds. We discuss how to set up stop loss thresholds without hindering trading while taking into account market volatility, i.e. median likelihood trading loss threshold. We consider how a financial institution’s board of directors interprets and assesses the credibility of VAR results.

We show how Stop Loss may be calibrated to the VaR threshold. For PSR limits we review the market practice of using average volatility in the calculation of counterparty limits and we highlight the value of using a measure based on the maximum trailing volatility as well as the importance of carrying out a frequent, dynamic review of the limits management system in light of a changing market environment.

About the authorJawwad Farid

Jawwad Farid has been building and implementing risk models and back office systems since August 1998. Working with clients on four continents he helps bankers, board members and regulators take a market relevant approach to risk management. He is the author of Models at Work and Option Greeks Primer, both published by Palgrave Macmillan. Jawwad is a Fellow Society of Actuaries, (FSA, Schaumburg, IL), he holds an MBA from Columbia Business School and is a computer science graduate from (NUCES FAST). He is an adjunct faculty member at the SP Jain Global School of Management in Dubai and Singapore where he teaches Risk Management, Derivative Pricing and Entrepreneurship.